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 "Nominal growth was never below 4-5 per cent per year between 1950 and 1980 - and usually it was somewhat above that level."

I was more thinking of the years past 1980.

 "And in any event there is a major difference between a year of flatlining nominal growth and a decade of same."

Now you are shifting the goalposts a bit.

Is there even zero nominal growth in any european country?

So if assume zero nominal growth for  a decade, then even a small current account deficit year after year is not sustainable. But that rest on two assumptions. How is this relevant regarding France or Belgium or even Italy?

by IM on Wed Sep 7th, 2011 at 09:26:59 AM EST
[ Parent ]
I was more thinking of the years past 1980.

Germany no longer had a CA deficit by then.

Now you are shifting the goalposts a bit.

No. If conditions change, what is unsustainable can become sustainable, and vice versa. But given no growth, any CA deficit is unsustainable.

Is there even zero nominal growth in any european country?

On average over the past half decade? Yes.

But of course the peak-to-trough part of the business cycle is an outlier...

So if assume zero nominal growth for  a decade, then even a small current account deficit year after year is not sustainable. But that rest on two assumptions. How is this relevant regarding France or Belgium or even Italy?

It's relevant because you have an implicit assumption of zero interest rates stuffed in there. The actual sustainability condition is that total hard currency liabilities normalised to GDP must not diverge when time goes to infinity. It is not difficult to derive the sustainable CA deficit given exogenous nominal growth rates and nominal interest rates, but I have a train to catch now so I'll leave the algebra to the reader.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Sep 7th, 2011 at 09:35:53 AM EST
[ Parent ]
Germany no longer had a CA deficit by then.

Germany had a CA deficit until a few years ago. (unification).

by IM on Wed Sep 7th, 2011 at 09:44:55 AM EST
[ Parent ]
Far as I can understand Germany's Current Acccount was mostly balanced in the 70ies, deficit in early 80ies, surplus in late 80ies, deficit in 90ies and surplus in 00ies. Not that I am sure what either of you is trying to prove, but I figured you should at least have the right numbers.

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by A swedish kind of death on Wed Sep 7th, 2011 at 03:26:03 PM EST
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